In January 2015, the US Department of Health and Human Services (DHHS) established new goals for Medicare to improve value while controlling costs. The Medicare Access & CHIP Reauthorization Act of 2015 (MACRA) will help achieve these goals:

  • Goal 1: by the end of 2016, 30% of Medicare payments are tied to quality or value via alternative payment models (APMs), and 50% by the end of 2018.
  • Goal 2: by the end of 2016, 85% of Medicare fee-for-service (FFS) payments are tied to quality or value, and 90% by the end of 2018.

Why must we change Medicare reimbursement? As shown in Chart 1, based on DHHS reports, Medicare costs rose sharply from its enactment in the mid-1960s to today, both as a percent of the Gross Domestic Product (GDP) and as a percent of all national health expenditures (NHE). Currently, Medicare is estimated to account for roughly 4% of the GDP, and for over one in five health care dollars. There is also a need to improve the quality of health care services and delivery. Changing Medicare reimbursement is a way to better manage costs while enhancing care quality.

As discussed in the series of posts on bundled payments, traditional medical billing and payment is volume-based. In other words, the more hip replacements that surgeons perform, the more they can bill for. If the hip replacement procedures are more costly than necessary, the surgeons still get reimbursed. If the patient suffers complications following hip replacement surgery, the added days in the hospital and hospital readmissions are reimbursed. Providers are rewarded for doing more, but not for doing better.

Increasingly, Medicare and other payers are moving to value-based reimbursement systems that reward providers for improving the quality of care while controlling costs. MACRA changes the incentives for patient care to encourage providers, largely physicians, to become part of this value-based movement. MACRA also ends the Sustainable Growth Rate (SGR) formula used since 1997 for Medicare reimbursement to healthcare providers.


MACRA establishes the Quality Payment Program (QPP) with two paths that move providers to value-based reimbursement:

  • The Merit-Based Incentive Payment System (MIPS)
  • Advanced Alternative Payment Models (APMs).

Healthcare practitioners eligible for Medicare Part B reimbursement will participate in MIPS. For the first two years of MACRA, MIPS eligible clinicians include physicians, dentists, physician assistants and advance practice nurses such as nurse practitioners and certified registered nurse anesthetists. In following years, eligibility may be expanded to other practitioners such as physical or occupational therapists, nurse midwives, clinical social workers and audiologists. Hospitals and other facilities, clinicians with low patient volume or in their first year of Medicare Part B participation, and some clinicians in APMs are excluded from MIPS.

Under MIPs, the eligible clinician’s Medicare Part B reimbursement is adjusted based on a Composite Performance Score (CPS) that encompasses the categories of quality, resource use, clinical practice improvement activities and advancing care information. The scoring system is complex, and may also be adjusted for factors such as practices located in rural areas. The amount of the adjustment to Part B reimbursement may be positive or negative, beginning at ± 4% in 2019 and increasing to ± 9% by 2022. The adjustments are designed to be more reasonable and predictable than the earlier SGR annual adjustments. Exceptional performers may receive additional reimbursement in the adjustment. These payment adjustments and bonuses begin in 2019.

APMs include new financing initiatives that increase incentives for high value care, including bundled payment models and Accountable Care Organizations (ACOs). Bundled payment models and ACOs compel providers across a health care episode to work together to deliver high quality care while controlling costs. Physicians, hospitals, rehabilitation centers, home health agencies and other healthcare providers share accountability for their budget as well as their patients, and are rewarded for high-value performance. QPP providers may not need to participate in MIPS if they are part of an advanced APM.

Nurses in many healthcare settings will see changes to improve coordination and services as a response to MACRA and other value-based reimbursement strategies. My book helps nurses understand fundamental concepts of health care economics and financing, including innovations that tie quality to payment. It is essential that nurses, at the front lines of health care delivery, learn about healthcare finance and its impact on their work and their institutions.

Susan J. Penner, RN, MN, MPA, DrPH, CNL . Author, Economics and Financial Management for Nurses and Nurse Leaders, 3rd  Edition, 2016, and adjunct faculty at the University of San Francisco School of Nursing and Health Professions.